Lo Ka Chun v. Lo To and Another

HCA002015E/1980

1980, No. A2015

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Godfrey J.

Date of judgment: 11th October 1989

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J U D G M E N T

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1. In this action the Court has to consider, among other things, the two "deeds of dissolution" which are referred to in the plaintiff's Statement of Claim. It is said for the plaintiff that the true nature of the transaction to which they relate is not fully reflected in these deeds, although they did have dispositive effect as to their subject matter, that is to say the interest, or suggested interest of one Lo Sum in some partnership businesses. Before proceeding further I propose to read the relevant paragraphs of the Statement of Claim.

"22.     In about early August 1970, the 1st Defendant further caused two Deeds of Dissolution to be prepared by Messrs K.C. Yung & Co., solicitors. These Deeds (hereinafter referred to as 'the said Deeds'), purported to dissolve the partnership in each of the said businesses and to effect a sale of the share of Lo Sum (deceased) in the said businesses to the 1st Defendant for a purported consideration of $250,000.00 in respect of Cheoy Lee Shipyard and of $85,000.00 in respect of Hip Hing Cheung Shipyard, being half the book value of Lo Sum's share of capital in each case.

23.     The 1st Defendant did on or about 17th August 1970 bring the said Deeds to the house of Lo Sum (deceased) for signature, but Lo Sum (deceased) did not then sign the same. During such visit, the 1st Defendant orally promised Lo Sum (deceased) that if the latter would execute the said Deeds he (the 1st Defendant) would transfer back the assets covered by the said transfers and Deeds to Lo Sum (deceased) or his nominee upon request, or in the event of Lo Sum's death, to the Plaintiff upon his attaining majority.

24.     The 1st Defendant did on or about 18th August 1970 go to the house of Lo Sum (deceased) again to ask if the latter had made up his mind to execute the said Deeds. When Lo Sum (deceased) showed no response the 1st Defendant, in order to further induce Lo Sum (deceased) to execute the said Deeds, did there and then, by his own hand, write and sign in the Chinese language an instrument which was witnessed by the Plaintiff (hereinafter referred to as 'the said undertaking'). By the said undertaking, the 1st Defendant declared that he would be willing at any time under the direction of Lo Sum (deceased) to transfer one third of the shares in Cheoy Lee Shipyard, General Metal Works Limited. Lo Brothers Limited, Foo Gee Investment Company Limited and Penny's Bay Investment Limited into the name of Lo Sum (deceased) or the name of the person appointed by Lo Sum (deceased) as his beneficiary; and that the 124 shares in Leung Fung . Enterprises would be dealt with in the same manner. The 1st Defendant further declared in the said undertaking that if there was a change of undertaking, the above shares would be transferred to the Plaintiff upon his attaining majority. The said undertaking was thereupon delivered by the 1st Defendant to Lo Sum (deceased).

25.     Subsequent thereto, and after the 1st Defendant had left, Lo Sum (deceased) signed the said Deeds which were thereafter delivered to the 1st Defendant.

26.     The said transfers and the said Deeds were not intended to and did not embodied the true agreement between Lo Sum (deceased) and the 1st Defendant because:

(a) Neither Lo Sum (deceased) nor the 1st Defendant intended that any part of the purported consideration should be paid.

(b) Neither Lo Sum (deceased) nor the 1st Defendant intended that there should be any transfer of beneficial interest of Lo Sum (deceased) in the said partnership or Lo Sum's shares to the 1st Defendant for himself.

(c) The true agreement between Lo Sum (deceased) and the 1st Defendant was that the lst Defendant would hold the interest of Lo Sum (deceased) in the said businesses and in Lo Sum's shares upon trust for Lo Sum (deceased) or his nominee or in the event of Lo Sum's death for the Plaintiff upon his attaining majority and is to be implied from the facts and circumstances pleaded in paragraphs 23, 24 and 25 hereof. Accordingly, the said deeds and said transfer merely conveyed the interest therein stated to the 1st Defendant to be held upon trust as aforesaid pleaded.

27.     Accordingly, pursuant to paragraph 26 hereof, the 1st Defendant holds the interest of Lo Sum (deceased) in the said business and Lo Sum's shares upon trust for the Estate of Lo Sum (deceased) alternatively for the plaintiff."

2. It will be observed that this plea asserts that the deeds did have a dispositive effect. A reference to the deeds shows that they were apparently brought into existence as part of a transaction of sale, whereby for a fixed consideration Lo Sum sold his interest in the partnerships therein mentioned to the 1st defendant.

3. However, a reference to the paragraphs of the pleading which I have read makes it perfectly plain that the plaintiff, although alleging that the deeds have dispositive effect, is not contending that they took effect according to their tenor. On the contrary, the plaintiff is seeking to set up a transaction the true nature which is entirely different from that which appears on the face of the deeds themselves. There are, beyond doubt, certain circumstances in which the law permits such a case to be pleaded and proved. Fraud, undue influence, the creation of a sham, are but three typical examples.

4. In this particular case, the assertion made on behalf of the plaintiff is that such allegations may be pleaded and proved in order to show that the property, the subject of the disposition in question, is held by the disponee upon a constructive trust for the disponor. I am not asked to and it is not appropriate at this time for me to consider whether this is right or wrong. It is, sufficient that that is the case which is now pleaded and which is sought to be proved on behalf of the plaintiff.

5. I turn to the case of the 1st defendant. In certain particulars which he has given of paragraph 19 of his defence, the 1st defendant has stated in terms that he alleges that the deeds became effective and operative instruments. So the parties are not at issue on the question whether or not the deeds had dispositive effect. But the 1st defendant makes a proviso. The proviso is that the deeds were executed by Lo Sum with the intent that he should thereupon be immediately and unconditionally bound thereby. The 1st defendant then says, in giving these particulars:-

"All facts and matters bearing upon such proviso are paricularly within the knowledge of the plaintiff."

It is clear from this (and Mr Neville Thomas, Queen Counsel, for the 1st defendant) has confirmed it, that the 1st defendant is in no position to lead any positive evidence himself in this connection.

6. Once it is accepted that the plaintiff is to be at liberty to plead and attempt to prove his case as I have outlined, irrespective of whether objections may at later stage be taken on the ground that the case sought to be made falls foul of the parol evidence Rule or, in any other way, is not well-founded as a matter of law, it becomes necessary to consider what the issue is between the parties, in order to consider what evidence may properly be led in relation to it on behalf of the plaintiff. As I have said, there is no issue as to the dispositive effect of the deeds, but on the plaintiff's side, it is said they do not record the true nature of the whole transaction (being that transaction which is pleaded as the true agreement" in paragraph 26 of the Statement, of Claim).

7. On the defendant's side, the case is that the deeds did take effect according to their tenor provided that they were executed by Lo Sum with intent that he should thereupon be immediately and unconditionally bound thereby. I do not see how the court can be expected to resolve the issue which is thus defined between the parties without evidence of what it was that Lo Sum intended. Such evidence would, no doubt, fly in the face of the parol of the evidence Rule if that rule were applicable, but I have to proceed at this stage on the footing that it is to be argued by the plaintiff that it is not applicable. Furthermore, I have to bear in mind the way in which the issue is defined by the 1st defendant himself, where he refers to the proviso requiring the court to come to some sort of finding as to what Lo Sum's intent actually was.

8. The plaintiff cannot give direct evidence of anybody's intention but his own. He can give evidence of facts which he has observed, but he cannot give evidence as to what Lo Sum intended, because it is not his mind, but Lo Sum's mind, in which that intention is formulated. Lo Sum is dead and so Lo Sum cannot give that evidence either. The plaintiff, subject to a point on the hearsay rule which I shall mention in a moment, can give evidence as to what Lo Sum said to him with a view to proving what it was that Lo Sum intended. What was Lo Sum's intention as to the true nature of the transaction? What was Lo Sum's intention on the question whether he should be immediately and unconditionally bound by the deeds in question? But if the plaintiff gives that evidence, it will be hearsay evidence, and as such, prima facie objectionable. Nevertheless, it is in the interests of justice that all the material evidence on the central issue should be before the court, with arguments as to its cogency and relevance reserved. No hearsay notices have been given in relation to it, but that seems to me to be a matter of no great importance in the circumstances of the present case. I can dispense with that, and allow questions to be put to the plaintiff intended to elicit what Lo Sum said to him with a view to proving what Lo Sum's intention was if I consider it in the interests of justice to do so.

The point is important. It is one which has been described by Mr Thomas as "explosive" and "central to the issue in the case". I agree; and I have given careful consideration to this point, assisted, as I have been, by lengthy argument on what my decision ought to be. As it seems to me, the right course is to allow questions of the nature which I have already indicated to be asked. I am I hope, capable of listening to further argument as to the cogency, reliability and relevance of the evidence when argument is addressed to me in due course. I can see an argument for suggesting that the evidence of the plaintiff as to what Lo Sum told him (the plaintiff) Lo Sum's intentions were, in the absence of anyone else and in the absence of any corroboration, ought to be given less weight than might, otherwise, appropriately be the case. But to shut this material out altogether would, I think, be to weigh the scales of justice unfairly against the plaintiff, and for that reason, I propose to allow questions on the lines I have indicated to be asked and answered.

Representation:

Mr Francis Ferris, Q.C. Mr Anthony F. Neoh & Mr Johnson Lam instructed by S.K. Wong & Co. for Plaintiff.

Mr Neville Thomas, Q.C. & Mr Ronny F.H. Wong instructed by T.S. Tong & Co. for 1st Defendant.

Mr Alan Leong instructed by Denton Hall Burgin & Warrens.